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Financial Statements
1. Two year B/S, three year I/S and SCF
2. Working Capital = CA-CL
3. Current Ratio = CA/CL
4. Cost > Billings on Long Term Contracts – CA [CIP]
5. Billings > Costs on Long Term Contracts – STL [Contra asset almost]
6. Off Balance Sheet
a. Interest rate swaps, future contracts, loan commitments, transfers of receivables
with recourse, in-substance defeasance
b. Market risk/credit risk
7. Fair Value (SFAS 157)
a. Not adjust for transaction cost (used to determine most advantageous market)
b. Maximize value (highest value in use with other assets or highest value stand-
alone basis)
c. Valuation
i. Market, income approach (DCF), cost (replacement)
ii. Inputs (Level 1 = active market, Level 2 = similar, Level 3 =
unobservable, need footnote disclosure)
8. Other Comprehensive Income (FAS 130)
a. Bypass income statement (unrealized G/L from AFS if no FV, foreign currency
translation, under/overfunded pension plans)
b. Disclosures (APB 22)
i. Contingencies, accounting policies, restrictions, subsequent events,
schedules, related party transactions (FAS 57, nature of relationship,
description of transaction, dollars, amounts due)
ii. Related (loans to officers, company as surety, nonmonetary exchanges)
9. Income Statement
a. Gross Profit – Operating Expense (SGA) = Income from Operations
b. ± Other Income/Expenses (interest) ± Unusual/Infrequent (gain/loss) = EBT –
Taxes = Income from Continuing Operations
c. ± Discontinued Operations (net of tax) ± Extraordinary Items (net of tax) = Net
Income

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 d. Freight out/Uncollectible accounts expense (selling expense)
e. Freight in is part of Inventory and COGS
f. Net of tax means REMOVE tax benefit
10. Discontinued Operations (FAS 144)
a. Clearly distinguished as component, held for sale (probable and unlikely to
change), and discontinued (cash flow eliminated, no continuing involvement)
b. Disclosure on either face of notes
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! 11. Extraordinary Items (APB 30)
a. Not early extinguishment of debt (SFAS 145)
b. If not extraordinary, other gains/losses.
12. Accounting Changes (FAS 154)
a. Change in principle (method)… GAAP to GAAP
i. Retrospective application, but if cumulative effect can be determined but
not period specific effect, apply cumulative effect to earliest period that
can be calculated
ii. If can’t determine both cumulative change in any prior, treat prospectively
iii. Disclose everything in footnotes
iv. (1) Identify changing accounts, split between direct (no need to change
past) and indirect changes.
b. Change in estimate
i. Prospective basis, example: change in depreciation
ii. If change is from change in principle, treat as change in estimate but show
footnote disclosure on income effects
c. Change in reporting entity
i. Retrospective application
ii. Footnote disclosure on type, reason, income effects
13. Error Corrections (FAS 154)
a. Non-GAAP (cash basis) to GAAP, not in good faith, math errors, incorrect cap,
inventory errors (counter balance)
b. Restating (not retrospective) financial statements
c. Footnote disclosures
d. Failure to Accrue (Counter Balance)
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 e. Inventory Errors (Counter Balance)
Year 1 Year 2
BI Over five (from EI)
+ Purchases
Goods Available For Sale Over five
- Ending Inventory Over five
COGS Under five Over five

Revenue
- Expenses Under five Over five
Net Income Over five Under Five

Assets Over five Now correct

Liabilities
Owners Equity Over five Fine (Net effect)
14. Financial Accounting and Changing Prices (SFAS 89)
a. Encouraged not required (inflationary situation)
b. Constant Dollar Accounting
i. Restates financial statement dollars into today’s prices (historical cost
numbers)
ii. Purchasing power gain and loss tied to CPI
iii. Monetary or fixed sum (no change) vs. Nonmonetary (adjust inventories,
investments in CS, PPE, intangible assets, CS)
c. Current Cost Accounting
i. Holding gain and loss
ii. Cost of replacing the identical asset owed
iii. Change basis of measurement from HC to CC